DOJ subpoenas Robinhood, others in GameStop probe: report

Federal prosecutors and regulators are investigating whether market manipulation or other types of misconduct fueled the rapid rise last month in prices of stocks

Federal prosecutors and regulators are investigating whether market manipulation or other types of misconduct fueled the rapid rise last month in prices of stocks such as GameStop Corp. GME -0.39% and AMC Entertainment Holdings Inc., AMC -2.24% according to people familiar with the matter.

The Justice Department’s fraud section and the San Francisco U.S. attorney’s office have sought information about the activity from brokers and social-media companies that were hubs for the trading frenzy, the people said. Prosecutors have subpoenaed information from brokers such as Robinhood Markets Inc., the popular online brokerage that many individual investors used to trade GameStop and other shares, the people said.


GameStop shares surged from about $20 to $483 over a period of two weeks in January. The stock has since fallen to around $50. It was fueled by an army of bullish individual traders exhorting one another on Reddit to buy the shares and squeeze hedge funds that bet the price would fall. Traders who bet stock prices will decline are known as short sellers.

In addition to the probe by the Justice Department, the Commodity Futures Trading Commission is examining similar trading, the people said. The CFTC has opened a preliminary investigation into whether misconduct occurred as some Reddit traders targeted silver futures and the largest exchange-traded fund tied to silver, the iShares Silver TrustSLV 0.08% one of the people said.

Separately, the House Financial Services Committee plans a hearing on Feb. 18 to examine what happened with GameStop’s shares. Reddit Chief Executive Steve Huffman was invited to testify and plans to appear before lawmakers, he told The Journal on Thursday.

Spokesmen for the Justice Department and CFTC declined to comment. A Reddit spokeswoman declined to comment. A spokesman for BlackRock Inc., which manages the iShares funds, couldn’t immediately be reached for comment.

Some commentators have said individuals coordinating on Reddit—largely in its WallStreetBets forum—openly engaged in a type of manipulation known as a pump and dump. In such a scheme, traders collude to inflate a stock’s price, usually by spreading false information, and then profit by selling their stakes to people duped by the fraud.

Proving market manipulation generally requires showing that traders schemed to create an artificial price and took action to accomplish it.

Regulators and prosecutors can find out who bought and sold shares, relying on data known as “blue sheets,” which brokers use to identify individuals behind trades. Tying the trades to public statements is more difficult; most people who talked about GameStop on websites such as Reddit did so anonymously.


If an investigation were to show that a few key individuals instigated the whole effort, that could buttress a manipulation case, according to securities lawyers. However, charging hundreds of defendants who traded in small increments and believed they were warring with hedge funds wouldn’t be viable, the lawyers said.

SEC Acting Chair Allison Lee told NPR last week that her agency’s enforcement division is working “around the clock right now” to determine whether any wrongdoing occurred. Lee said the SEC enforcement division is looking for signs of manipulation, but also checking whether brokerages such as Robinhood that had to curb trading at the peak of the frenzy and corporate insiders at companies such as GameStop complied with regulations.